4 ways to be a more confident investor
Author: Maurie Backman
Source: The Motley Fool
The more confident you are as an investor, the less likely you'll be to panic and make rash decisions when the stock market takes a turn for the worse. Here are a few things you can do to boost your confidence as an investor – and sleep better at night.
1. Recognize that stock market downturns are normal
Stock market crashes are nothing new. In fact, there have been plenty of downturns since 1928 and, ultimately, the market managed to recover from every single one. Recognizing that market downturns just happen could make the idea of living through one less worrisome.
Remember, too, that not all stock market crashes are prolonged. Just take a look at what happened a year ago, when stocks tanked as the pandemic broke out. Things seemed really dire back then, but stocks recovered their value in full and well before 2020 came to a close.
2. Develop a strategy based on your goals
Having an actual investing plan could help you feel better about the portfolio you build. Figure out what milestones you're saving for and determine how much tolerance you have for risk. From there, decide how you'll assemble a portfolio.
Will you buy individual stocks or stick to balanced funds for easy diversification? Establishing a strategy and sticking to it could give you the confidence boost you need to succeed at investing.
3. Understand asset allocation rules
As a general rule, the closer you are to retirement, the less risk you should take in your portfolio. There are no exact allocation rules in that regard – there's no specific percentage of your portfolio you must keep in stocks versus bonds. Rather, there are general guidelines to follow. If you have an average appetite for risk and don't have many assets outside of your investments, then as a general rule, aim to have somewhere between 40% and 60% of your assets in stocks and the rest in bonds if you're about to retire.
If you're younger, however, feel comfortable having more of your assets in stocks, since you have time to ride out market downturns. For example, if you're in your 30s, you might go so far as having 80% to 85% of your assets in stocks and 20% or less in bonds (the latter's returns tend to lag behind).
4. Take a long-term approach to investing
You're more likely to lose money in the stock market if your goal is to make a quick buck. A better idea? Assemble a portfolio of quality investments and hold them for a long time. Through the years, the value of your stocks is likely to rise so that you end up making money without having to worry about constantly timing the market.
Investing is something you deserve to feel good about. If that's not the case, do what you can to approach the process from a more confident place. The right outlook could not only spare you a world of stress, but also prevent you from making poor decisions that ultimately cost you.